Professor

  • Category:
    Business
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  • Level:
    Undergraduate
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8CASE STUDY: AMAZON.COM

Case Study: Amazon.com

Summary of the Case Study: Amazon.com

Amazon.com case study highlights how the firm became a successful online company selling a wide assortment of products to its extensive customer base. Although the firm focused on operating a bookstore, Amazon.com found opportunities in selling toys, music videos and DVD to win a competitive advantage. The case study also demonstrates how Amazon.com expanded its product line, and the benefits and challenges that the firm encountered. The case study underscores some of strategies that online businesses use to penetrate the market. Particularly, the case study highlights the benefits and challenges linked to strategic alliances. Drawing from the case study, Amazon.com entered into partnership with Toys”R” Us where the two companies agreed on sharing the sales revenue obtained from the sale of toys by Toys”R” Us. In addition, the agreement signed by the two companies required Amazon.com to depend exclusively on Toys” R” Us products. As a result, the agreement restricted Amazon.com from selling toys itself or on behalf other partners. The partnership between Amazon.com and Toys”R” Us enhanced the sales of Toys with Toys”R” Us attaining an exceeded sales of 300 million dollars. The partnership not only benefitted the two companies but also benefitted small toy retailers because buyers visited Amazon.com Website to look for toys.

Although Amazon.com initially concentrated on online bookstore, the firm moved into other product lines and capitalised on the opportunities provided by other firms. Through expanding its products line, Amazon.com increased its product base, customer base and improved market share and presence. Amazon.com became one of the highly visible success stories in E-commerce through putting into consideration every process involved in purchasing, promoting, selling and shipping consumer goods. The case study demonstrates the costs and benefits linked entry strategies for online business.

Questions

  1. Toys “R”Us sales exceeded $300 million by 2004 on the Amazon.com site. Explain how Amazon, Toy”R”Us, and other toy sellers who participated in Amazon’s marketplace retailer program benefited from the network effect as a result of the relationship between Amazon and Toys ”R” Us

The network effect triggered by the relationship amid Toys “R” Us and Amazon benefited Toys “R” Us and other toy sellers who took part in Amazon’s Marketplace retailer program in many ways. Given that, Amazon.com holds complex deals with numerous companies, Toys “R” Us and other toy sellers profited from these deals. Amazon is a one-stop online retailer where people purchase different products at affordable prices. The fact that Amazon is one-stop online retailer attracts a lot of customers who not only benefit Amazon, but also other companies selling their products through Amazon.com website. Both Amazon.com and other toy sellers benefit from the Amazon retailer program s in terms of increased sales. The Amazon retailer program has helped Toys ”R” Us to effectively sell its products through Amazon.com Website (Schneider, 2014).

Evidently, Amazon had attained highly visible success stores in electronic commerce. The fact that Amazon.com had already established a good name in the business environment worked well for Toys “R” Us because the firm used Amazon.com website to market and advertise its products. Toys ”R” Us enjoyed the goodwill that Amazon.com had attained from its good relationships with its customers, hence increasing its sales that not only benefitted the company, but also benefited Amazon.com. According to Pilbeam, Rodseth and Sigh (2008), goodwill entails the value that a company has because it has a good relationship with its clients. Initially, Toys “R” Us had difficulties selling its products online and making timely delivery. However, through collaborating with Amazon, the firm’s sales exceeded 300 million dollars making both Amazon.com and Toys “R” Us to benefit from the network economics effects. Small toy retailers who visited Amazon Marketplace benefitted because shoppers visited Amazon’s website to look for toys. While Toys “R” Us and other toy sellers benefitted from the partnership, Amazon, the Website owner also benefited enormously because it obtained a certain percentage of each sale of Toys “R” products.

  1. In 2004, Toys «R» Us sued Amazon.com for violating terms of the agreement between the companies; specifically, Toys «R» Us objected to Amazon.com’s permitting Amazon Marketplace retailers to sell toys. (Note: when the lawsuit was filed Amazon Marketplace was called «zShops».) Amazon.com responded by filing a countersuit. After more than two years of litigation, a New Jersey Superior Court Judge ruled that the agreement had been violated by both parties. The judge ordered the agreement be terminated and denied both companies’ claims for monetary damages. Amazon.com appealed the ruling. In 2009, an appellate court affirmed the lower court ruling but reversed the ruling on damages, which had awarded Toys «R» Us $93 million plus interest. In June 2009, the two companies agreed in an out of court settlement that Amazon.com would pay damages of $51 million. Use your favorite search engine and the web links for case c1 to review the courts’ findings and rulings. Prepare a report of about 200 words in which you summarize the advantages and disadvantages that Amazon.com should have considered before in entered into the agreement with Toys»R»Us.

Amazon and Toys “R” Us had engaged in collaborative commerce. According to Turban, King, Lee and Liang (2008), collaborative commerce can be conducted between pairs of business partners or among many partners. Amazon.com and Toys “R” Us entered into agreement that required Amazon not to sell toys from other companies, and involved sharing of the sales revenue. There are disadvantages and advantages that Amazon.com should have put into consideration before agreeing to partner with Toys “ R” Us. One of the advantages of the partnership include winning an extensive market share, increased sales, timely deliveries and increased profits. The agreement augmented the profitability of Amazon.com through increasing customer traffic while Toys “R” Us benefited from a well-established market, efficient product delivery, increased customer base and increased sales and profits. The partnership was advantageous to the Toys “R” Us as it also enhanced its reputation and market presence. The partnership lowered costs, enhanced customer service, and increased flexibility and competitive capability.

However, the agreement was disadvantageous to Amazon.com because it restricted the firm from working with other toy dealers. The agreement made Toys R” Us the exclusive toy provider on Amazon-com, thereby preventing collaboration with other potential providers. Although Amazon wanted to provide many toys, the agreement required the firm to limit its toys selection to Toys, “R” Us. In addition, Amazon.com should have put into consideration the legal, trust and respect issues linked to strategic alliances. Shaw, Blanning and Whinston (2012) assert that unless there is respect and trust among partners, the business can break and instigate legal issues.

  1. In 2009, Amazon.com purchased Zappos, a highly successful shoe retailer that was started in 1999. Since the purchase, Amazon.com has kept Zappos operating under its own brand as a separate Website. In a report of about 200 words, outline a rationale for Amazon.com’s decision not to subsume Zappos operations into the Amazon.com Website.

Businesses always seek for key ingredients that would enhance their operational and strategic success. The decision not to subsume Zappos operations into the Amazon.com Website was a way of developing an extensive customer base in the online shoe market. The decision to acquire Zappos.com was because the firm had a well-developed brand, experienced management team and good customer service. By operating Zappos.com as an independent entity, Amazon strengthened and expanded its presence in soft line retail that is strategically essential to the prospective business growth of Amazon.com. Amazon.com focused on utilising Zappos.com strengths that include good customer care and management. While Zappos.com benefitted through exploiting Amazon.com infrastructure, diverse customer base and advanced technology, Amazon.com gained from capitalising on Zappos.com excellent management and customer service.

The merger between Zapoos.com and Amazon.com augmented Amazon.com’s competitive advantage, and revived its market growth (Garbade, 2009). According to Miltenburg (2005), merging with or acquiring a firm and allowing the firm to operate as an independent entity dramatically strengthens a firm’s position in the industry, reduces costs and opens novel sources of competitive advantage. Combining operations fills resource gaps and allow firms to do things that it did not engage in initially. The decision not to subsume Zappos.com into Amazon.com’s Website enhanced the geographical coverage of the firm, capacity and novel business opportunities.

  1. In 1998, Amazon.com purchased the Internet Movie Database for a substantial, but undisclosed sum. The site offers reviews of movies and information about movies, actors, directors and others involved in the filmmaking business. The site does not charge membership fees(except for a small area of the site reserved for people who work within the film industry, called IMDbPro which does not generate a substantial amount of revenue for Amazon.com). Speculate on why Amazon.com might have purchased this Website and explain how it benefits from owning the site today.

Amazon.com might have purchased Internet Movie Database to promote its movie business. The firm made the purchase to promote its ultimate entry into online movies and video sales. Through the purchase, Amazon.com wanted to establish a powerful presence in the movie distribution systems and business. Given that IMDB’s contains rich information useful to target specific products and movies to customers, the purchase might have been triggered by Amazon.com desire to sell movies on Blue-Ray and DVD besides live-streaming service. Today, the Internet Movie Database provides the Amazon.com with continuous flow of visitors who demonstrate interests into purchasing movies in different formats.

References

Garbade, M.J.(2009). International mergers & acquisitions, cooperation and network in the e-Business industry: Focused on Google, Yahoo, MSN, YouTube, Myspace, Facebook, Studivz and others. USA: GRIN Verlag.

Miltenburg, J.(2005).Manufacturing strategy: How to formulate and implement a winning plan, Second Edition. UK: CRC Press.

Pilbeam. E., Rodseth, A., & Singh, B.(2008). FCS Advertising & Promotions L3. SA: Pearson.

Schneider, G.(2014). Electronic commerce. UK: Cengage Learning.

Shaw, M., Blanning, R., & Whinston, A.(2012).Handbook on electronic commerce. UK: Springer Science & Business Media.

Turban, E., King, D., Liang, T.(2015). Electronic commerce: A managerial and social network Perspective. UK: Springer.